Finance Act 2011

• (a) before the definition of “business of leasing plant or machinery” insert—

“ascribed value”, in relation to plant or machinery, is to be read in accordance with section 437A (but reading the reference to the relevant company or partnership as a reference to the predecessor);

, and

• (b) omit the definition of “market value”.

26

• (1) In Schedule 4 to CTA 2010 (index of defined expressions), omit the entry for “market value (in relation to plant or machinery) (in Chapters 3 to 6 of Part 9)”.

• (2) In that Schedule, insert the following entry at the appropriate place—

ascribed value (in relation to plant or machinery) (in Chapters 3 to 6 of Part 9)	section 437A

.

Application of new provisions

27

• (1) The amendments made by paragraphs 2 to 5 and 7 to 15, and the general paragraphs so far as relevant to those amendments, have effect where the relevant day (as defined for the purposes of the amended provision) falls on or after 23 March 2011.

• (2) The amendment made by paragraph 6(3), and the general paragraphs so far as relevant to that amendment, have effect in relation to disposal events taking place on or after 23 March 2011 (including in cases where the election was made before that date).

• (3) The amendments made by paragraphs 6(2) and 23 to 25, and the general paragraphs so far as relevant to those amendments, have effect in relation to transfers or successions taking place on or after 23 March 2011 (including, in the case of the amendment made by paragraph 6(2), where the election was made before that date).

• (4) The general paragraphs are—

• (a) paragraph 1,

• (b) paragraphs 16 to 22, and

• (c) paragraph 26.

SCHEDULE 7

Amendments of Chapter 4 of Part 2 of CTA 2010

1

• (1) Section 6 of CTA 2010 (UK resident company operating in sterling and preparing accounts in another currency) is amended as follows.

• (2) In subsection (1), after “company” insert “ (other than a UK resident investment company) ”.

• (3) After that subsection insert—

(1A) This section also applies if, for a period of account, a UK resident investment company— (a) in accordance with generally accepted accounting practice, prepares its accounts in a currency other than sterling, and (b) either— (i) has sterling as its designated currency for that period of account (see sections 9A and 9B), or (ii) if it does not have a designated currency for that period, in those accounts identifies sterling as its functional currency in accordance with generally accepted accounting practice.

2

• (1) Section 7 of that Act (UK resident company operating in currency other than sterling and preparing accounts in another currency) is amended as follows.

• (2) In subsection (1), in paragraph (a), after “company” insert “ (other than a UK resident investment company) ”.

• (3) After that subsection insert—

(1A) This section also applies if, for a period of account, a UK resident investment company— (a) in accordance with generally accepted accounting practice, prepares its accounts in one currency, (b) either— (i) has another currency as its designated currency for that period (see sections 9A and 9B), or (ii) if it does not have a designated currency for that period, in those accounts identifies another currency as its functional currency in accordance with generally accepted accounting practice, and (c) that other currency is not sterling.

• (4) In subsection (2), in step 1, for “functional” substitute “ relevant ”.

• (5) In subsection (3) for “functional” substitute “ relevant ”.

• (6) After that subsection insert—

(4) In subsections (2) and (3) “the relevant currency” means the currency other than sterling referred to in subsection (1)(c) or (1A)(c).

3

After section 9 of that Act insert—

(9A) (1) The designated currency of a UK resident investment company is the currency which the company elects as its designated currency. (2) A company (“X”) may elect a currency as its designated currency only if— (a) at the time the election is made condition A or B is met, or (b) the election is made in the period (if any) beginning with the company's incorporation and ending immediately before its first accounting period. (3) But an election made under subsection (2)(b) is void if, at the time X's first accounting period begins, neither condition A nor condition B is met. (4) Condition A is that a significant proportion of X's assets and liabilities are denominated in the currency. (5) Condition B is that— (a) the currency is the functional currency of another company, and (b) it is reasonable to assume that the two companies will meet the consolidation condition. (6) X and another company (“Y”) meet the consolidation condition at any time if— (a) for a period which includes that time, the financial results of X are comprised in financial statements of Y's group prepared in accordance with acceptable accounting practice, or (b) if no financial statements of the group are prepared in accordance with acceptable accounting practice for a period which includes that time, the financial results of X would be comprised in financial statements of Y's group for a period which includes that time if such statements were prepared in accordance with international accounting standards. (7) In subsection (6)— - “financial statements of the group” means consolidated financial statements of Y and its subsidiaries (within the meaning of section 351 of TIOPA 2010), - “Y's group” means a group of which Y is the ultimate parent (and for this purpose “group” and “ultimate parent” have the same meaning as they have for the purposes of Part 7 of that Act (see sections 338 and 339)), and - “acceptable accounting practice” means— 1. international accounting standards, 2. UK generally accepted accounting practice, or 3. accounting practice which is generally accepted in the country in which Y is resident. (8) A currency is the designated currency of X for a period of account if the election in respect of that currency has effect throughout that period (see section 9B). (9B) (1) An election under section 9A(2)(a) takes effect at the beginning of the day specified in the election as the day on which it takes effect (which must be later than the day on which the election is made). (2) An election under section 9A(2)(b) is treated as taking effect at the time of X's incorporation. (3) An election under section 9A(2)(a) may be revoked by notice of the revocation being given to an officer of Revenue and Customs before the election takes effect. (4) Subject to that, an election has effect until immediately before— (a) the day on which another election by X takes effect, or (b) the day on which a revocation event occurs, (whichever first occurs). (5) A revocation event occurs in a period of account (other than a period to which subsection (6) applies) if, at any time during that period— (a) it is not the case that a significant proportion of X's assets and liabilities are denominated in the currency to which the election relates, and (b) it is not the case that the currency is the functional currency of another company which, with X, met the consolidation condition (within the meaning of section 9A(6)) at any time during the preceding period of account. (6) Where the election is made under section 9A(2)(b), a revocation event occurs in the period of account in which X's first accounting period begins only if— (a) Condition A and not Condition B is satisfied at the beginning of that accounting period, and (b) the condition in subsection (5)(a) is met at any time during the period of account but after the first accounting period begins. (7) Subsections (8) and (9) apply if a period of account of X (“the straddling period of account”) begins before, and ends on or after, the day on which— (a) an election under section 9A(2)(a) takes effect, or (b) a revocation event occurs. (8) It is to be assumed, for the purposes of this Chapter, that the straddling period of account consists of two separate periods of account— (a) the first beginning with the straddling period of account and ending immediately before that day, and (b) the second beginning with that day and ending with the straddling period of account, and X's profits and losses are to be computed accordingly for the purposes of corporation tax. (9) For those purposes, it is to be assumed— (a) that X prepares its accounts for each of the two periods in the same currency, and otherwise on the same basis, as it prepares its accounts for the straddling period of account, and (b) that if the accounts for the straddling period of account, in accordance with generally accepted accounting practice, identify a currency as X's functional currency, the accounts for each of the two periods do likewise. (10) In this section references to “X” are to be construed in accordance with section 9A.

4

In section 17 of that Act (interpretation of Chapter 4 of Part 2), after subsection (3) insert—

(3A) In this Chapter “investment company” means a company whose business consists wholly or mainly in the making of investments and the principal part of whose income is derived from those investments.

Amendments of ICTA

5

In Schedule 24 to ICTA (assumptions for calculating chargeable profits, creditable tax and corresponding United Kingdom tax of foreign companies), in paragraph 4 (reliefs under Corporation Tax Acts dependent upon the making of a claim or election), after sub-paragraph (2) insert—

(2B) For the purposes of sub-paragraph (1) an election under section 9A of CTA 2010 (designated currency of a UK resident investment company) is not to be regarded as an election upon which relief under the Corporation Tax Acts is dependent, and sub-paragraph (2)(b) does not apply in relation to such an election. (2C) But if, by notice given to an officer of the Board, the United Kingdom resident company which has or, as the case may be, any two or more United Kingdom resident companies which together have, a majority interest in the company so request, the company shall be assumed (subject to section 9A(2) of CTA 2010) to have made an election under section 9A of that Act in the form specified in the notice (and accordingly that section and section 9B of that Act apply to determine the effect (if any) of that election).

Amendments of CTA 2009

6

• (1) Section 328 of CTA 2009 (loan relationships: exchange gains and losses) is amended as follows.

• (2) In subsection (2), after “subsections” insert “ (2A), ”.

• (3) After that subsection insert—

(2A) Subsection (1) does not apply to an exchange gain or loss of an investment company (within the meaning of section 17 of CTA 2010) which would not have arisen but for a change in the company's functional currency (within the meaning of section 17(4) of that Act) as between— (a) the period of account of the company in which the gain or loss arises, and (b) a period of account of the company ending in the 12 months immediately preceding that period.

7

• (1) Section 606 of that Act (derivative contracts: exchange gains and losses) is amended as follows.

• (2) In subsection (2), after “subsections” insert “ (2A), ”.

• (3) After that subsection insert—

(2A) Subsection (1) does not apply to an exchange gain or loss of an investment company (within the meaning of section 17 of CTA 2010) which would not have arisen but for a change in the company's functional currency (within the meaning of section 17(4) of that Act) as between— (a) the period of account of the company in which the gain or loss arises, and (b) a period of account of the company ending in the 12 months immediately preceding that period.

Commencement

8

• (1) The amendments made by this Schedule have effect in relation to periods of account beginning on or after 1 April 2011.

• (2) An election may be made or revoked for the purposes of section 9A of CTA 2010 (as inserted by paragraph 3) at any time on or after 9 December 2010.

• (3) Where an election made by a company before 27 June 2011 does not specify the day on which it takes effect, the election is to be treated as if it specified the first day of the first period of account of the company beginning after the election was made.

• (4) An election made before the day on which this Act is passed must be made by notice in writing to an officer of Revenue and Customs.

• (5) Schedule 1A to TMA 1970 does not apply to an election made before the day on which this Act is passed.

SCHEDULE 8

Introduction

1

ITEPA 2003 is amended as follows.

Childcare vouchers

2

• (1) Section 270A (limited exemption for qualifying childcare vouchers) is amended as follows.

• (2) In subsection (2), for “C” substitute “ D ”.

• (3) After subsection (5B) (inserted by section 36) insert—

(5C) Condition D is that the employer has, at the required time, made an estimate of the employee's relevant earnings amount for the tax year in respect of which the voucher is provided (see section 270B).

• (4) In paragraph (a) of subsection (6), for “£55” substitute “ the appropriate amount ”.

• (5) After that subsection insert—

(6ZA) In subsection (6)(a) “the appropriate amount”, in the case of an employee, means— (a) if the relevant earnings amount in the case of the employee for the tax year, as estimated in accordance with subsection (5C), exceeds the higher rate limit for the tax year, £22, (b) if the relevant earnings amount in the case of the employee for the tax year, as so estimated, exceeds the basic rate limit for the tax year but does not exceed the higher rate limit for the tax year, £28, and (c) otherwise, £55.

• (6) In subsection (11)—

• (a) for “exempt amount” (in each place) substitute “ amounts ”,

• (b) for “(6) above” substitute “ (6ZA) above ”, and

• (c) for “318A(6)” substitute “ 318A(6A) ”.

3

After section 270A insert—

(270B) (1) For the purposes of section 270A, the “relevant earnings amount”, in the case of an employee provided with vouchers by an employer for any qualifying week in a tax year, means— (a) the aggregate of— (i) the amount of any relevant earnings for the tax year from employment by the employer, and (ii) any amounts treated under Chapters 2 to 12 of Part 3 as earnings from such employment, less (b) the aggregate of any excluded amounts. (2) But if the employee becomes employed by the employer during the tax year, what would otherwise be the amount of the aggregate mentioned in subsection (1)(a) is the relevant multiple of that amount; and the relevant multiple is— $$365 RD$where RD is the number of days in the period beginning with the day on which the employee becomes employed by the employer and ending with the tax year.$ (3) In subsection (1)(a) “relevant earnings” means— (a) salary, wages or fees, and (b) any other earnings specified in regulations made by the Treasury under this paragraph. (4) In subsection (1)(b) “excluded amounts” means amounts specified in regulations made by the Treasury under this subsection. (5) In section 270A “the required time”, in the case of an employee, means— (a) if the employee joins the scheme under which the vouchers are provided at a time during the tax year, that time, and (b) otherwise, the beginning of the tax year. (6) For the purposes of subsection (5)(a) the employee is taken to join the scheme as soon as— (a) the employer has agreed that vouchers will be provided under the scheme for the employee, and (b) there is a child falling within section 270A(3)(a) or (b) in relation to the employee. (7) The Treasury may by order amend this section.

Childcare provided otherwise than at employer’s premises etc

4

• (1) Section 318A (limited exemption for childcare provided otherwise than at employer's premises etc) is amended as follows.

• (2) In subsection (1), for “C” substitute “ D ”.

• (3) After subsection (5B) (inserted by section 36) insert—

(5C) Condition D is that the employer has, at the required time, made an estimate of the employee's relevant earnings amount for the tax year in respect of which the care is provided (see section 318AA).

• (4) In subsection (6), for “£55” substitute “ the appropriate amount ”.

• (5) After that subsection insert—

(6A) In subsection (6) “the appropriate amount”, in the case of an employee, means— (a) if the relevant earnings amount in the case of the employee for the tax year, as estimated in accordance with subsection (5C), exceeds the higher rate limit for the tax year, £22, (b) if the relevant earnings amount in the case of the employee for the tax year, as so estimated, exceeds the basic rate limit for the tax year but does not exceed the higher rate limit for the tax year, £28, and (c) otherwise, £55.

5

After section 318A insert—

(318AA) (1) For the purposes of section 318A, “relevant earnings amount”, in the case of an employee provided with care by an employer for any qualifying week in a tax year, means— (a) the aggregate of— (i) the amount of any relevant earnings for the tax year from employment by the employer, and (ii) any amounts treated under Chapters 2 to 12 of Part 3 as earnings from such employment, less (b) the aggregate of any excluded amounts. (2) But if the employee becomes employed by the employer during the tax year, what would otherwise be the amount of the aggregate mentioned in subsection (1)(a) is the relevant multiple of that amount; and the relevant multiple is— $$365 RD$where RD is the number of days in the period beginning with the day on which the employee becomes employed by the employer and ending with the tax year.$ (3) In subsection (1)— - “relevant earnings” has the same meaning as in subsection (1)(a) of section 270B (see subsection (3) of that section), and - “excluded amounts” has the same meaning as in subsection (1)(b) of section 270B (see subsection (4) of that section). (4) In section 318A “the required time”, in the case of an employee, means— (a) if the employee joins the scheme under which the care is provided at a time during the tax year, that time, and (b) otherwise, the beginning of the tax year. (5) For the purposes of subsection (5)(a) the employee is taken to join the scheme as soon as— (a) the employer has agreed that care will be provided under the scheme for the employee, and (b) there is a child falling within section 318A(3)(a) or (b) in relation to the employee. (6) The Treasury may by order amend this section.

6

In subsection (1) of section 318D (childcare: power to vary exempt amount)—

• (a) for “318A(6)” substitute “ 318A(6A) ”, and

• (b) for “exempt amount) so as to substitute a different sum of money for that” substitute “ amounts which are the exempt amount) so as to substitute different sums of money for those ”;

and, accordingly, in the heading of that section, after “vary” insert “ amounts which are the ”.

Commencement and transitional provision

7

The amendments made by this Schedule have effect for the tax year 2011-12 and subsequent tax years.

8

• (1) But the amendments made by paragraphs 2(2) to (5) and 3 to 5 do not apply for a tax week in the case of an employee and employer and a scheme if—

• (a) the employee joined the scheme before 6 April 2011,

• (b) the employee has not ceased to be employed by the employer during the period beginning with that date and ending with the tax week, and

• (c) during that period there has not been a continuous period of 52 weeks throughout which vouchers were not, or care was not, being provided for the employee under the scheme.

• (2) For the purposes of sub-paragraph (1) the employee is taken to join the scheme as soon as—

• (a) the employer has agreed that vouchers, or care, will be provided under the scheme for the employee, and

• (b) there is a child falling within section 270A(3)(a) or (b), or section 318A(3)(a) or (b), of ITEPA 2003 in relation to the employee.

9

Regulations made under section 270B(3)(b) or (4) of ITEPA 2003 (inserted by paragraph 3) on or before 31 December 2011 may have retrospective effect in relation to the tax year 2011-12.

10

The amendments made by paragraphs 2(6) and 6 do not prevent the making of provision under section 270A(11)(a) or 318D(1) of ITEPA 2003 in relation to sections 270A(6) and 318A(6) of that Act as, by virtue of paragraph 8, they continue to have effect otherwise than as amended by this Schedule.

SCHEDULE 9

Amendments of TCGA 1992

1

In section 30 of TCGA 1992 (tax-free benefits)—

• (a) in subsection (1)(a) omit “or a relevant asset”,

• (b) for subsection (2) substitute—

(2) But, for the purposes of corporation tax, this section does not have effect if the disposal of the asset is a disposal by a company of shares in, or securities of, another company (as to which see section 31).

, and

• (c) omit subsection (8).

2

For sections 31 to 34 of TCGA 1992 (which make provision about disposals by companies of shares in or securities of other companies) substitute—

(31) (1) For the purposes of corporation tax, subsection (2) has effect as respects the disposal by a company (“the disposing company”) of shares in, or securities of, another company if— (a) arrangements have been made whereby the value of those shares or securities, or any relevant asset, is materially reduced, (b) the main purpose, or one of the main purposes, of the arrangements is to obtain a tax advantage, and (c) the arrangements do not consist solely of the making of an exempt distribution. (2) Any allowable loss or chargeable gain accruing on the disposal is to be calculated as if the consideration for the disposal were increased by such amount as is just and reasonable having regard to— (a) the arrangements, and (b) any charge to, or relief from, corporation tax that, in the absence of this section, would arise in consequence of the disposal or the arrangements. (3) For the purposes of subsection (1)— (a) an asset is a relevant asset if, at the time of the disposal, it is owned by a company which is a member of the same group as the disposing company, and (b) it does not matter whether the tax advantage is obtained for the disposing company or any other person. (4) In relation to a case in which the disposal of the shares or securities precedes their acquisition, the reference in subsection (1)(a) to a reduction is to be read as including a reference to an increase. (5) Where, but for arrangements to which subsection (6) applies, a transaction would, by virtue of section 29(2), be treated as a disposal of shares by a company, that transaction is to be treated as if it were, by virtue of section 29(2), a disposal of those shares. (6) The arrangements to which this subsection applies are arrangements— (a) whereby the value of the shares or securities is materially reduced, and (b) the main purpose, or one of the main purposes, of which is to obtain a tax advantage (whether for the company or any other person). (7) In this section— - “arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable); - “exempt distribution” means a distribution which— 1. for the purposes of section 931D of CTA 2009 (exemption from charge to tax: distributions received by companies that are not small), falls within an exempt class by virtue of section 931H of that Act (dividends derived from transactions not designed to reduce tax), or 2. would be within paragraph (a) but for the recipient being a small company (within the meaning of section 931S of that Act) in the accounting period of the recipient in which the distribution was received; - “group” is to be construed in accordance with section 170; - “securities” has the same meaning as in section 132; - “tax advantage” means the avoidance of a liability to corporation tax in respect of chargeable gains.

3

In section 176 of TCGA 1992 (depreciatory transactions within a group), in subsection (1), for “on or after 31st March 1982” substitute “ within the period of 6 years ending with the disposal ”.

4

In section 179 of TCGA 1992 (company ceasing to be member of group), in subsection (9)(b), after “section 30” insert “ or 31 ”.

Consequential repeals

5

The following provisions are repealed—

• (a) in Schedule 20 to FA 1996, paragraph 47(b) and (c),

• (b) Schedule 9 to FA 1999,

• (c) in Schedule 29 to FA 2000, paragraph 17,

• (d) in Schedule 9 to FA 2002, paragraph 5(2) and (3),

• (e) in Schedule 30 to that Act, paragraph 6,

• (f) in Schedule 1 to CTA 2009, paragraph 361, and

• (g) in Schedule 23 to FA 2009, paragraph 8.

Commencement and transitionals

6

• (1) The amendments made by paragraphs 1 to 3 and 5 have effect in relation to disposals of shares or securities by companies made on or after the day on which this Act is passed (“the commencement day”).

• (2) But nothing in paragraph 1, 2 or 5 prevents section 31A of TCGA 1992 (asset-holding company leaving group), as it had effect immediately before the commencement day, continuing to have effect on or after that day in relation to cases where the section 30 disposal to which that section refers occurred before that day.

• (3) The amendment made by paragraph 4 has effect in relation to disposals of shares or securities treated under section 179 of TCGA 1992 as taking place on or after the commencement day.

• (4) In this paragraph “securities” has the same meaning as in section 132 of TCGA 1992.

SCHEDULE 10

Degrouping

1

In section 139 of TCGA 1992 (reconstruction involving transfer of business), after subsection (1A) insert—

(1B) Nothing in section 179(3D) prevents the two companies being treated as mentioned in subsection (1).

2

In section 171A of TCGA 1992 (election to reallocate gain or loss to another member of the group), omit subsection (7).

3

• (1) Section 179 of TCGA 1992 (company ceasing to be member of group) is amended as follows.

• (2) In subsection (1)(a) for “company B is a member of a group” substitute “ company A and company B are members of the same group ”.

• (3) In subsection (1A) omit the words from “For this purpose” to the end.

• (4) For subsection (2) substitute—

(2) Where two companies cease to be members of the group at the same time, subsection (1) does not have effect as respects the acquisition of an asset by one of the companies from the other if condition A or B is met. (2ZA) Condition A is that the companies— (a) are both 75 per cent subsidiaries and effective 51 per cent subsidiaries of another company on the date of the acquisition, and (b) remain both 75 per cent subsidiaries and effective 51 per cent subsidiaries of that other company until immediately after they cease to be members of the group. (2ZB) Condition B is that one of the companies— (a) is both a 75 per cent subsidiary and an effective 51 per cent subsidiary of the other on the date of the acquisition, and (b) remains both a 75 per cent subsidiary and an effective 51 per cent subsidiary of the other until immediately after the companies cease to be members of the group.

• (5) For subsection (2A)(a) substitute—

(a) a company (“company A”) acquired an asset from another company (“company B”) at a time when both company A and company B were members of the same group (“the first group”), (aa) company A has ceased to be a member of the first group,

.

• (6) After subsection (3) insert—

(3A) Any chargeable gain or allowable loss which would otherwise accrue to company A on the sale referred to in subsection (3) does not so accrue if— (a) company A ceases to be a member of the group in consequence of— (i) a disposal of shares in company A or another member of the group made by a member of the group, or (ii) two or more such disposals, (b) either— (i) subsection (3B) applies to the disposal or, if there is more than one disposal, to at least one of them, or (ii) sub-paragraph (i) does not apply but had subsection (3B) applied to the disposal or, if there is more than one disposal, to each of them, any gain arising on the disposal or disposals would not have been a chargeable gain by virtue of Schedule 7AC, and (c) in the absence of this subsection, section 535 of CTA 2010 (UK REITS: exemption of gains) would not apply to the chargeable gain or allowable loss which would accrue to company A on the sale. (3B) This subsection applies to a disposal of shares if— (a) the company making the disposal is resident in the United Kingdom at the time of the disposal, (b) the shares are chargeable assets in relation to that company immediately before that time, or (c) any part of the chargeable gain or allowable loss accruing on the disposal is treated as a gain or loss accruing to a person by virtue of section 13(2) (attribution of gains to members of non-resident companies). In this section “group disposal” means a disposal within subsection (3A)(a) to which this subsection applies and the company making the disposal is referred to as “the transferor company”. (3C) For the purposes of subsections (3A) and (3B), the question whether there is a disposal is to be determined ignoring section 127 (share reorganisations etc treated as not involving disposal). (3D) If subsection (3A) applies, any chargeable gain or allowable loss accruing to the transferor company on a group disposal (other than a group disposal to which section 127 applies) is to be calculated— (a) where a chargeable gain would accrue to company A in the absence of subsection (3A), as if the amount of the consideration for the group disposal were increased by the amount of the gain, and (b) where an allowable loss would accrue to company A in the absence of subsection (3A), as if an amount equal to the amount of the loss were a sum allowable under section 38 as a deduction in the computation of the gain or loss accruing on the group disposal. (3E) If subsection (3A) applies, and section 127 applies to a group disposal, any chargeable gain or allowable loss accruing to the transferor company on a disposal of the new holding arising from the group disposal (or any part of that holding) is to be calculated— (a) where a chargeable gain would accrue to company A in the absence of subsection (3A)— (i) as if an amount equal to the amount of the gain were excluded from the expenditure allowable as a deduction under section 38 in the computation of the gain or loss accruing on the disposal (but not so as to reduce that expenditure below nil), and (ii) where (ignoring sub-paragraph (i)) the amount of the gain exceeds the expenditure allowable as such a deduction, as if a gain equal to that excess accrued on the disposal of the new holding (or, if the disposal is of a part of the new holding, a gain equal to the corresponding part of that excess accrued on that disposal), in addition to any gain or loss that actually accrues on the disposal of the new holding or part, and (b) where an allowable loss would accrue to company A in the absence of subsection (3A), as if an amount equal to the amount of the loss were a sum allowable under section 38 as a deduction in the computation of the gain or loss accruing on the disposal. In this subsection “new holding” has the meaning given by section 126. (3F) If there is more than one group disposal, the references in subsections (3D) and (3E) to the amount of the gain or loss which would accrue to company A in the absence of subsection (3A) are to be read, in relation to each disposal, as references to— (a) such proportion of that amount as the transferor companies in relation to the group disposals jointly elect as the appropriate proportion in relation to the disposal in question, or (b) where no election is made, the proportion of that amount attributable to that disposal if that amount is divided equally between the group disposals. (3G) An election under subsection (3F) must— (a) specify the appropriate proportion in relation to each group disposal, and (b) be made, by notice to an officer of Revenue and Customs, no later than 2 years after the end of the first accounting period of a company in which any chargeable gain or allowable loss on a group disposal accrues. (3H) If a group disposal by a company consists of shares of more than one class, then, for the purposes of subsections (3D) and (3E), the company may apportion any increase or deduction to be made between the classes of shares in such manner as it considers appropriate.

• (7) For subsection (5) substitute—

(5) Subsections (6) to (8) apply where— (a) in the absence of subsection (6), company A would be treated by virtue of subsection (3) as selling an asset at any time, by reason of ceasing to be a member of the group, and (b) company A ceases to be a member of the group by reason only of the fact that the principal company of that group becomes a member of another group.

• (8) In subsection (6)—

• (a) for “The company” to “but” substitute “ Subsection (3) does not apply to treat company A as selling the asset at that time; but ”, and

• (b) for “the company in question” (in each place) substitute “ company A ”.

• (9) In subsection (7) for “the company” (in both places) substitute “ company A ”.

• (10) After that subsection insert—

(7A) Any chargeable gain or allowable loss which would otherwise accrue to company A on the sale referred to in subsection (6) does not so accrue if— (a) company A ceases at the relevant time to satisfy the conditions in subsection (7) in consequence of— (i) a disposal of shares in company A, or another member of the other group mentioned in subsection (5)(b), made by a member of that other group, or (ii) two or more such disposals, (b) either— (i) subsection (3B) applies to the disposal or, if there is more than one disposal, to at least one of them, or (ii) sub-paragraph (i) does not apply but had subsection (3B) applied to the disposal or, if there is more than one disposal, to each of them, any gain arising on the disposal or disposals would not have been a chargeable gain by virtue of Schedule 7AC, and (c) in the absence of this subsection, section 535 of CTA 2010 (UK REITS: exemption of gains) would not apply to the chargeable gain or allowable loss which would accrue to company A on the sale. (7B) Where subsection (7A) applies, subsections (3C) to (3H) apply to the calculation of any chargeable gain or allowable loss accruing on a disposal within subsection (7A)(a) to which subsection (3B) applies (a “relevant disposal”) with the following modifications— (a) in subsections (3C) to (3H) for the references to a group disposal substitute references to a relevant disposal, and (b) in subsections (3C), (3D) and (3E) for the references to subsection (3A) substitute references to subsection (7A).

• (11) In subsection (8) for the words from “the company” to the end substitute “ company A on the sale referred to in subsection (6) is to be treated as accruing immediately before the relevant time. ”

• (12) In subsection (10), for paragraph (a) substitute—

(a) two companies are associated with each other if one is a 75 per cent subsidiary of the other or both are 75 per cent subsidiaries of another company.

• (13) After that subsection insert—

(10A) For the purposes of this section an asset is a “chargeable asset” in relation to a company at any time if any gain accruing to the company on a disposal of the asset by the company at that time— (a) would be a chargeable gain and would by virtue of section 10B form part of its chargeable profits for corporation tax purposes, or (b) would, but for Schedule 7AC (exemptions for disposals by companies with substantial shareholdings), be within paragraph (a).

4

After section 179 of TCGA 1992 insert—

(179ZA) (1) This section applies where— (a) a gain accrues to a company (“company A”) on a sale referred to in subsection (3) or (6) of section 179, or (b) a gain would so accrue but for subsection (3A) or (7A) of that section. (2) If subsection (3D) or (3E) of that section applies in relation to one or more group disposals (within the meaning of that section)— (a) the company making the disposal, or (b) if there is more than one disposal, the companies making those disposals acting jointly, may make a claim for the amount of the gain to be treated for the purposes of the subsection in question as reduced by an amount specified in the claim. (3) In any other case, company A may make a claim for the amount of the gain to be treated for all purposes of this Act as reduced by an amount specified in the claim. (4) Where a claim is made under subsection (2) or (3), the gain must be treated, for the purposes mentioned in the subsection in question, as reduced by such amount (if any) as is just and reasonable. (5) In determining the amount which is just and reasonable regard must be had, in particular, to any transaction as a direct or indirect result of which company A or any associated company (within the meaning of section 179(10)) acquired the asset to which the gain relates. (6) Where under this section the gain accruing to company A on a sale referred to in subsection (3) or (6) of section 179 is treated as reduced by an amount (“the permitted deduction”), the subsection in question has effect, so far as it provides for the immediate reacquisition of the asset by company A, as if the reference to market value of the asset were to its market value less the permitted deduction.

5

In TCGA 1992, the following provisions are repealed—

• (a) section 179A (reallocation within group of gain or loss accruing under section 179);

• (b) section 179B (roll-over of degrouping charge on business assets);

• (c) Schedule 7AB (roll-over of degrouping charge: modification of enactments).

Substantial shareholding exemption

6

• (1) Schedule 7AC to TCGA 1992 (exemptions for disposals by companies with substantial shareholdings) is amended as follows.

• (2) After paragraph 15 insert—

(15A) (1) For the purposes of this Part, the period for which the investing company is treated as holding a substantial shareholding in the company invested in is extended in accordance with sub-paragraph (3) if the following conditions are met. (2) The conditions are— (a) that, immediately before the disposal, the investing company holds a substantial shareholding in the company invested in, (b) that an asset which, at the time of the disposal, is being used for the purposes of a trade carried on by the company invested in was transferred to it by the investing company or another company, (c) that, at the time of the transfer of the asset, the company invested in, the investing company and, if different, the company which transferred the asset were all members of the same group, and (d) that the asset was previously used by a member of the group (other than the company invested in) for the purposes of a trade carried on by that member at a time when it was such a member. (3) The investing company is to be treated as having held the substantial shareholding at any time during the final 12 month period when the asset was used as mentioned in sub-paragraph (2)(d) (if it did not hold a substantial shareholding at that time). (4) “The final 12 month period” means the period of 12 months ending with the time of the disposal.

• (3) In paragraph 19 (requirements relating to the company invested in), after sub-paragraph (2) insert—

(2A) If the conditions in paragraph 15A(2)(b) to (d) are met, sub-paragraph (2B) applies for the purpose of determining whether the requirement of sub-paragraph (1)(a) is satisfied. (2B) The company invested in is to be treated as having been a trading company at any time during the final 12 month period when the asset was used as mentioned in paragraph 15A(2)(d) (if it was not a trading company at that time). (2C) “The final 12 month period” has the meaning given in paragraph 15A(4).

Intangible fixed assets: degrouping

7

• (1) Part 8 of CTA 2009 (intangible fixed assets) is amended as follows.

• (2) In section 780 (deemed realisation and reacquisition at market value), in subsection (5)(b) before “associated” insert “ certain ”.

• (3) In section 783 (associated companies leaving group at same time), for subsection (1) substitute—

(1) Where two companies cease to be members of a group at the same time, section 780 does not apply in relation to a transfer by one of the companies to the other if condition A or B is met. (1A) Condition A is that the companies— (a) are both 75% subsidiaries and effective 51% subsidiaries of another company on the date of the transfer, and (b) remain both 75% subsidiaries and effective 51% subsidiaries of that other company until immediately after they cease to be members of the group. (1B) Condition B is that one of the companies— (a) is both a 75% subsidiary and an effective 51% subsidiary of the other on the date of the transfer, and (b) remains both a 75% subsidiary and an effective 51% subsidiary of the other until immediately after the companies cease to be members of the group.

, and, in the section heading, for “Associated” substitute “ Certain associated ”.

• (4) In section 788 (provisions supplementing provisions about degrouping), for subsection (3) substitute—

(3) For the purposes of those sections and this section two companies are associated with each other if one is a 75% subsidiary of the other or both are 75% subsidiaries of another company.

Consequential repeals

8

In consequence of the repeals made by paragraph 5, the following are also repealed—

• (a) in IHTA 1984, section 97(1)(a)(iii) and the “or” before it,

• (b) in FA 2002, section 42(1) and (3)(a),

• (c) in F(No.2)A 2005, in Schedule 4, paragraphs 8 and 10(3), and

• (d) in FA 2009, in Schedule 12, paragraph 2.

Commencement

9

• (1) The amendments made by paragraphs 1 to 5 and 8 have effect in relation to any disposal of an asset by one company (“company B”) to another company (“company A”) made at a time when company B is a member of a group, if—

• (a) company A ceases to be a member of the group on or after the passing of this Act, or

• (b) where company A ceased to be such a member before the passing of this Act in circumstances where section 179(6) to (8) of TCGA 1992 applied, company A ceases to satisfy the conditions in section 179(7) of that Act on or after the passing of this Act.

• (2) The amendments made by paragraph 6 have effect in relation to disposals of shares made on or after the passing of this Act.

• (3) The amendments made by paragraph 7 have effect in relation to any disposal of an asset by one company (“company B”) to another company (“company A”) made at a time when company B is a member of a group, if—

• (a) company A ceases to be a member of the group on or after the passing of this Act, or

• (b) where company A ceased to be such a member before the passing of this Act in circumstances where section 783 of CTA 2009 applied, company A ceases to be a member of another group on or after the passing of this Act.

• (4) But where an early commencement election is made in relation to a group—

• (a) sub-paragraphs (1) and (3) apply in relation to that group as if the references in those sub-paragraphs to the passing of this Act were references to 1 April 2011, and

• (b) sub-paragraph (2) applies in relation to any disposal of shares by a member of that group as if the reference in that sub-paragraph to the passing of this Act were a reference to 1 April 2011.

• (5) An early commencement election in relation to a group means an election made for the purposes of this paragraph by the principal company of the group.

• (6) If a company ceases to be a member of a group in the period which begins with 1 April 2011 and ends with the passing of this Act, an early commencement election may be made or revoked in relation to the group only with the consent of that company contained in a notice which accompanies the election or revocation.

• (7) Where an early commencement election is revoked, the election is treated as never having had effect.

• (8) An early commencement election may not be made or revoked after 31 March 2012 (and paragraph 3(1)(b) of Schedule 1A to the Management Act (amendment of elections etc) does not apply in relation to an early commencement election).

SCHEDULE 11

TCGA 1992

1

In section 177A of TCGA 1992 (restriction on set-off of pre-entry losses), omit “and losses accruing on assets held by any company at such a time”.

2

Schedule 7A to that Act (restriction on set-off of pre-entry losses) is amended as follows.

3

• (1) Paragraph 1 (application and construction of Schedule) is amended as follows.

• (2) In sub-paragraph (1) for “is or has been” substitute “ becomes ”.

• (3) For sub-paragraph (2) substitute—

(2) In this Schedule “pre-entry loss”, in relation to any company, means any allowable loss that accrued to that company at a time before it became a member of the relevant group.

• (4) Omit sub-paragraphs (3), (3A), (4) and (5).

• (5) In sub-paragraph (6) for “Subject to” to “if” substitute “ If ”.

• (6) Omit sub-paragraph (8).

4

Omit paragraphs 2 to 5 (determination of pre-entry proportion of losses on pre-entry assets).

5

• (1) Paragraph 6 (restrictions on the deduction of pre-entry losses) is amended as follows.

• (2) In sub-paragraph (2)—

• (a) omit paragraph (a) (and the “and” after it), and

• (b) in paragraph (b), omit “in any other case”.

• (3) In sub-paragraph (3)—

• (a) omit paragraph (a) (and the “and” after it), and

• (b) in paragraph (b), omit “in the case of an election under sub-paragraph (2)(b) above,”.

6

• (1) Paragraph 7 (gains from which pre-entry losses are to be deductible) is amended as follows.

• (2) In sub-paragraph (1), for paragraph (c) substitute—

(c) on the disposal of any asset in respect of which the conditions in sub-paragraph (1A) are met.

• (3) After that sub-paragraph insert—

(1A) The conditions referred to in sub-paragraph (1)(c) are— (a) that the asset was acquired, on or after the entry date, by— (i) the company to which the pre-entry loss accrued (“company A”), or (ii) a company which, at the time of the acquisition, was a group company of company A, from a person who at the time of the acquisition was not a group company of company A, and (b) that the asset has not, since its acquisition from that person, been used or held for any purposes other than those of a trade or business which— (i) was being carried on by company A immediately before the entry date, and (ii) continued until the disposal to be carried on by company A or a company which, when it carried on the trade or business, was a group company of company A. (1B) For the purposes of sub-paragraph (1A), a company is a “group company of company A” at any time when it is a member of a group of companies of which company A is also a member. (1C) Where a company, having become a member of the relevant group, subsequently becomes a member of another group ( “ the new group ”)— (a) sub-paragraph (1) continues to have effect, in relation to any loss which accrued to the company before it became a member of the relevant group, by reference to the date on which it became such a member, and (b) accordingly, that sub-paragraph does not apply separately in relation to the loss by reason of it also having accrued to the company before it became a member of the new group.

• (4) Omit sub-paragraph (2).

• (5) In sub-paragraph (3)—

• (a) omit “, without prejudice to paragraph 9 below”,

• (b) omit paragraph (b), and

• (c) in paragraph (c), for “sub-paragraphs (1)(c) and (2)(c)” substitute “ sub-paragraph (1A) ”.

• (6) For sub-paragraph (4) substitute—

(4) Sub-paragraphs (4A) and (4B) apply for determining for the purposes of this paragraph whether an asset on the disposal of which a chargeable gain accrues was an asset held by a company immediately before the entry date (a “pre-entry asset”). (4A) Except as provided by sub-paragraph (4B), an asset is not a pre-entry asset if— (a) the company which held the asset at the entry date is not the company which makes the disposal, and (b) since the entry date that asset has been disposed of otherwise than by a disposal to which section 171 applies. (4B) Without prejudice to sub-paragraph (4C), where, on a disposal to which section 171 does not apply— (a) an asset would cease to be a pre-entry asset by virtue of sub-paragraph (4A), but (b) the company making the disposal retains an interest in or over the asset in question, that interest is a pre-entry asset. (4C) For the purposes of this paragraph— (a) an asset acquired or held by a company at any time and an asset held at a later time by that company, or by any company which is or has been a member of the same group of companies as that company, is to be treated as the same asset if the value of the second asset is derived in whole or in part from the first asset, and (b) if— (i) any asset is treated (whether by virtue of paragraph (a) or otherwise) as the same as an asset held by a company at a later time, and (ii) the first asset would have been a pre-entry asset in relation to that company, the second asset is also to be treated as a pre-entry asset in relation to that company; and paragraph (a) applies, in particular, where the second asset is a freehold and the first asset is a leasehold the lessee of which acquires the reversion.

• (7) In sub-paragraph (5) omit “or (2)” (in both places).

• (8) In sub-paragraph (6) omit “or (2)”.

7

• (1) Paragraph 8 (change of a company's nature) is amended as follows.

• (2) In sub-paragraph (1)—

• (a) after “trade” (in each place) insert “ or business ”,

• (b) in paragraph (a) for “carried on by that company” substitute “ which was carried on by that company immediately before it became a member of that group ”, and

• (c) for “paragraph 7(1)(c) and (2)(c)” substitute “ paragraph 7(1A) ”.

• (3) For sub-paragraph (2) substitute—

(2) In sub-paragraph (1) “a major change in the nature or conduct of a trade or business” includes— (a) a major change in the type of property dealt in, or services or facilities provided, in the trade or business, (b) a major change in customers, markets or outlets of the trade or business, or (c) in the case of a company with investment business (within the meaning of section 1218 of CTA 2009), a major change in the nature of the investments held; and this paragraph applies even if the change is the result of a gradual process which began outside the period of three years mentioned in sub-paragraph (1)(a).

8

Omit paragraph 9 (identification of “the relevant group” and application of Schedule to every connected group).

9

In paragraph 11 (continuity provisions), omit sub-paragraph (3)(b) (and the “and” before it).

Consequential repeals

10

Omit the following provisions (which relate to the provisions repealed by paragraphs 1 to 9)—

• (a) in FA 1994, sections 93(8) to (10) and 94;

• (b) in FA 1998, section 138;

• (c) in FA 2000, in Schedule 29, paragraph 7(2) to (5);

• (d) in F(No.2)A 2005, section 65(2), (3) and (5).

Commencement

11

• (1) The amendments made by this Part of this Schedule have effect on and after commencement in relation to the deduction of any pre-entry loss within paragraph 1(2) of Schedule 7A to TCGA 1992 (as substituted by paragraph 3 of this Schedule) regardless of—

• (a) whether the loss accrued before or on or after commencement, and

• (b) whether the company which accrued the loss became a member of the relevant group (within the meaning of that Schedule) before or on or after commencement.

• (2) In this paragraph “commencement” means the day on which this Act is passed.

Transitional provision

12

• (1) Sub-paragraph (2) applies where, immediately before commencement, Schedule 7A to TCGA 1992 had effect, in the case of a company which is or has been a member of a group of companies (“the relevant group”) in relation to a loss of that company within paragraph 1(2)(b) of that Schedule (pre-entry proportion of an allowable loss that has accrued to a company on the disposal of a pre-entry asset).

• (2) On and after commencement that loss is to be treated, for the purposes of Schedule 7A to TCGA 1992, as if it were a pre-entry loss within the meaning of paragraph 1(2) of that Schedule (as substituted by paragraph 3 of this Schedule) which accrued to that company immediately before it became a member of the relevant group.

• (3) In this paragraph “commencement” means the day on which this Act is passed.

SCHEDULE 12

Part 1 — Exemptions for companies with limited UK connection

1

• (1) Section 748 of ICTA (cases where apportionment of chargeable profits and creditable tax under section 747(3) does not apply) is amended as follows.

• (2) In subsection (1), in paragraph (b) for “that Schedule” substitute “ Schedule 25 ”.

• (3) After that paragraph insert—

(ba) the company is exempt for that period by virtue of Part 2A of that Schedule (exemption for trading companies with limited UK connection); or (bb) the company is exempt for that period by virtue of Part 2B of that Schedule (exemption for companies exploiting intellectual property with limited UK connection); or

.

2

After section 751AA of that Act insert—

(751AB) (1) This section applies if— (a) an apportionment under section 747(3) would fall to be made as regards an accounting period (“the relevant accounting period”) of a controlled foreign company, (b) but for a relevant failure, section 748(1)(ba) or (bb) would have prevented such an apportionment, and (c) a company resident in the United Kingdom (“the UK resident company”) has a relevant interest in the controlled foreign company in that period. (2) “Relevant failure” means— (a) in the case of section 748(1)(ba), one or both of the following— (i) a failure to satisfy the requirement of paragraph 12E of Schedule 25 (requirement as to company's UK connection) in circumstances where the requirement would be satisfied if the reference in sub-paragraph (3)(a) of that paragraph to 10% were a reference to 50%, and (ii) a failure to satisfy the requirement of paragraph 12F of that Schedule (finance income and relevant IP income) in circumstances where the relevant IP income of the controlled foreign company for the accounting period does not exceed 5% of the company's gross income for that period, and (b) in the case of section 748(1)(bb), a failure to satisfy the requirement of paragraph 12M of that Schedule (finance income). (3) The UK resident company may make an application to the Commissioners for Her Majesty's Revenue and Customs for the chargeable profits of the controlled foreign company for the relevant accounting period (“the chargeable profits”) to be reduced to an amount specified in the application (“the specified amount”). The specified amount may be nil. (4) If the Commissioners grant the application— (a) the chargeable profits are treated as reduced to the specified amount, and (b) the controlled foreign company's creditable tax (if any) for that period is treated as reduced by so much of that tax as, on a just and reasonable basis, relates to the reduction in the chargeable profits, for the purpose of applying section 747(3) to (5) for determining the sum (if any) chargeable on the UK resident company under section 747(4)(a) (but for no other purpose). (5) The Commissioners may grant the application only if— (a) they are satisfied that the specified amount is not less than the relevant amount, and (b) they have not previously granted an application made by the UK resident company in respect of the relevant accounting period under section 751A or 751AC. (6) “The relevant amount” means— (a) if the relevant failure is within subsection (2)(a), the sum of— (i) the excess finance and IP income (if any) for the relevant accounting period, and (ii) in a case where there is a failure specified in subsection (2)(a)(i), so much (if any) of the net chargeable profits for that period as are not excluded by subsection (8), and (b) if the relevant failure is within subsection (2)(b)— (i) the amount (if any) by which the controlled foreign company's finance income for the relevant accounting period exceeds 5% of its gross income for that period, or (ii) if that amount is a negligible amount, nil. (7) “The excess finance and IP income” for the relevant accounting period means— (a) the amount (if any) by which the total of the controlled foreign company's finance income and relevant IP income for that period exceeds 5% of its gross income for that period, or (b) if that amount is a negligible amount, nil. (8) Net chargeable profits are excluded by this subsection if, and to the extent that, they can reasonably be regarded— (a) as representing the net economic value which— (i) arises to the appropriate body of persons (taken as a whole), and (ii) is created directly by qualifying work, or (b) as not being wholly or partly attributable, directly or indirectly, to transactions with persons within the charge to United Kingdom tax. (9) In subsection (8)(a) “qualifying work” means work which— (a) is done in the territory in which the controlled foreign company is resident, and (b) is done in that territory by individuals working for the controlled foreign company there. (10) A transaction with a company which is within the charge to United Kingdom tax only because it carries on a trade in the United Kingdom through a permanent establishment there is within subsection (8)(b) only if the transaction is attributable to activities carried on through that establishment. (11) For the purposes of subsections (8) and (9)— (a) section 751A(5), (6) and (9) applies as it applies for the purposes of the equivalent provisions of section 751A, and (b) paragraph 5(2) to (5) of Schedule 25 (residence of controlled foreign company) applies as it applies in relation to Part 2 of that Schedule. (12) In this section— - “finance income” has the meaning given by paragraph 12F(3) of Schedule 25 (with references to C read as references to the controlled foreign company); - “relevant IP income” has the meaning given by paragraph 12F(4) of that Schedule; - “net chargeable profits” means chargeable profits excluding so much of those profits as is directly attributable to the finance income or relevant IP income of the controlled foreign company; - “UK-connected gross income” has the same meaning as in paragraph 12E of Schedule 25; - “United Kingdom tax” means corporation tax or income tax; and paragraph 12G of that Schedule (gross income) applies for the purposes of this section as it applies for the purposes of Part 2A of that Schedule (with references to C read as references to the controlled foreign company).

3

In Schedule 25 to that Act (cases where section 747(3) does not apply), after Part 2 insert—